Inflation-adjusted home prices in China have fallen below where they started two decades ago, and the fiscal fallout is hitting local governments even harder than developers.
China was building housing like crazy, and companies kept the prices artificially inflated, even though that created literal ghost towns and a number of buildings had to be demolished due to safety reasons…
Now with the bubble popped, prices are resetting to market value, and since this means a new swathe of newly affordable housing, that availability drives prices down even further.
Think of it like this: you’re sitting on 3 million tonnes of apples. You’re selling each apple for $50. Nobody but a few idiots are buying them. Then you suddenly need the cash, and start dropping the prices - you have to go below market rates to offload all those apples to raise capital. And the raw amount of supply means you’re going way under market prices, dragging other sellers with you.
Yes I know all that, bubbles result in stupid projects and poor quality, and banks stupidly believing growth will continue, so loaning to buy a house is easy. that’s the same here. I know how bubbles work.
But China has had an economic growth rate on an average of 10% many years of that period, it’s slowed down a bit in recent years but is still high.
But let’s say 15 years with 10% growth, that means the economy has grown 4 times in 15 years!!
So it’s crazy that prices fall back to less than when the economy was only 25% of what it is now.
Your description doesn’t explain that.
China was building housing like crazy, and companies kept the prices artificially inflated, even though that created literal ghost towns and a number of buildings had to be demolished due to safety reasons…
Now with the bubble popped, prices are resetting to market value, and since this means a new swathe of newly affordable housing, that availability drives prices down even further.
Think of it like this: you’re sitting on 3 million tonnes of apples. You’re selling each apple for $50. Nobody but a few idiots are buying them. Then you suddenly need the cash, and start dropping the prices - you have to go below market rates to offload all those apples to raise capital. And the raw amount of supply means you’re going way under market prices, dragging other sellers with you.
Yes I know all that, bubbles result in stupid projects and poor quality, and banks stupidly believing growth will continue, so loaning to buy a house is easy. that’s the same here. I know how bubbles work.
But China has had an economic growth rate on an average of 10% many years of that period, it’s slowed down a bit in recent years but is still high.
But let’s say 15 years with 10% growth, that means the economy has grown 4 times in 15 years!!
So it’s crazy that prices fall back to less than when the economy was only 25% of what it is now.
Your description doesn’t explain that.